His opponents nicknamed him "glavnîi extremist" (chief extremist) instead of "glavnîi economist" (chief economist). In January 1989 he was one of the founders of a Moldovan association in Tiraspol. On July 9, 1989 he was arrested for the first time, being released with excuses after few days. Also in 1989 he was dismissed from his job, but was able to regain his position after appealing to the prosecutor office. On September 5, 1989 as he spoke at a meeting in Tiraspol in favour of the language laws passed by the Moldovan parliament, he was taken away by policemen, who needed to protect him from the crowd of political opponents.[2]

Starting with 1989, he was the president of the Tiraspol branch of the Moldovan Popular Front, which advocated the union of Moldova and Romania.[3]

On December 9, 1993, the Supreme Court of Transnistria found him guilty of a number of offences defined in the Criminal Code of the Moldovan Soviet Socialist Republic, including incitement to commit an offence against national security, organisation of activities with the aim of committing extremely dangerous offences against the State, murdering a representative of the State with the aim of spreading terror, premeditated murder, unlawfully requisitioning means of transport, deliberate destruction of another's property and illegal or unauthorised use of ammunition or explosives.

Ilașcu was sentenced to be shot and the other three defendants were sentenced to hard labour for terms between 12 and 15 years. They had no right of appeal.[3]

During the trial, the defendants were kept in reinforced iron cages, as they were considered "extremely dangerous". This decision was contested by various international human rights organizations, which doubted the fairness of the trial and alleged that they were prosecuted only because they were members of the Tiraspol branch of the Popular Front, a Moldovan party which favours a union with Romania. For years he was kept in solitary confinement without access to family and medical assistance.

Ilașcu was eventually released on May 5, 2001, two years after he filed an application with the European Court of Human Rights and following a verdict of the European Court for Human Rights,[6] where he had sued both Russia and Moldova.

The European Court of Human Rights judged in 2004 that the authorities have infringed the human rights (as defined by the European Convention on Human Rights) of Ilie Ilașcu and the other three people arrested by the Transnistrian government. The ruling came after a legal process that began in 1999.[8] The court ruled that the Supreme Court of the PMR was not an actual court with any jurisdiction over the detainees, and its findings that led to their conviction were not considered.[9] Under the court's decision, Russia was to pay Ilașcu 187,000 euros. Alexandru Tănase was a lawyer for Ilașcu.[8]